Date of Award

Spring 2023

Degree Name

Bachelor of Science (BS)

Advisor(s)

Kevin Mirabile

Abstract

In this paper, I explore a trading strategy referred to as the buy-write strategy. Rational investors are always looking for a way to outperform their benchmarks, and using a trading strategy with options could potentially allow an investor to do this. In 2002, when the Chicago Board Options Exchange (CBOE) created the first buy-write index, it sparked an interest from Professor Robert Whaley of Vanderbilt. Whaley backtested the strategy from 1989 to 2002 and found that the buy-write strategy with calls placed at-the-money had almost exactly the same return at two-thirds the standard deviation. In my research I apply the same methodology to test the efficacy of the strategy over the period January 2015 to April 2023. This time period is especially interesting given the rise of one of the worst global pandemics we have ever seen which caused a sharp increase in market volatility. This paper tests the buy-write strategy at five different strike levels to test for an optimal strategy. My results show that despite the buy-write strategy being perceived as a risk-reducing strategy, the strategy will underperform in periods of intense market volatility.

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